The losses at SSgA can be traced, in part, to a determination earlier this decade to push into more lucrative, active management.

While its assets under management looked set to increase substantially at the turn of the century – and did so, trebling from $700bn in 2000 to $2 trillion at its height last year – its revenues and profit margins had been overtaken by BGI. In 2002, SSgA’s margin, its pre-tax profit over its revenue, was 12%, compared with BGI’s 18%.

SSgA wanted to catch up and pushed its active funds – initially its enhanced indexing active quant products, whose fees are higher than those of passive funds.

It had to struggle against a perception that it was too risk-averse to be a credible force in active asset management, but chief executive Tim Harbert, chief investment officer Alan Brown and Mark Lazberger, head of SSgA’s international business, forged ahead.

By 2004, 70% of new assets under management was for active mandates, a substantial increase from three years earlier.

The growth in revenue and margin continued after Harbert died in 2004 and after the departure of Brown, who left in 2005 when William Hunt became Harbert’s successor.

It became perceived as a leader in 130/30 funds, which make use of short-selling, and pushed its active fundamental products. In 2006, it was focusing on building hedge funds and said it planned to hire up to 40 people. A few months later, State Street chief executive Ronald Logue told analysts that 70% of the growth in revenue in 2006 came from high-margin product lines.

Its revenue growth still lagged BGI’s, but by the end of 2007, the latest year for which figures are available, SSgA’s profit margins had almost caught up with BGI’s, standing at 36% compared with its rival’s 38%. But by then, losses in SSgA’s active fixed-income strategies had emerged, leading swiftly to lawsuits from disappointed investors.

Hunt stepped down as chief executive in the first week of 2008, with no 2007 bonus. In April, after four months with a caretaker leader, SSgA appointed Scott Powers to the role. He had been chief executive of UK/South African insurer Old Mutual’s US operating unit.

State Street cut its 2007 profits by establishing a $625m reserve to cover the estimated cost of the legal claims against SSgA. To date, it has disclosed having to pay $417m out of this reserve last year to settle some of the lawsuits, with more pending.